BC Small Business Guide To Being Audited

Kelowna accountant, Ken Davidson, offers advice for small businesses that are being audited.

When the time comes that Revenue Canada wants to conduct an audit on your business, you want to make sure you have all your ducks in a row. It can be a daunting task for your business but it can run smooth, as long as you have kept a decent paper trail and understand what type of audit is being conducted on your business.

Revenue Canada can request additional information and audit you up to 3 years after any claim is filed and you have 30 days to respond…so you better answer quickly and handle the situation appropriately, and I recommend you have your Kelowna accountant or local accountant involved .

There Are Three Types of Audits

Request For Information – This generally happens after you’ve filed for a return. You receive a fairly straightforward letter that requests additional documentation to verify a specific claim.

Desk Audit – When this type of audit occurs, you will receive a phone call asking for more information, usually due to a filing that created a red flag with CRA. This could be for a variety of reasons but it’s generally because whatever you were filing for is more than the expected amount for your business or industry.

Field Audit – When you receive a notice for a field audit, be prepared for Revenue Canada to come and pay you an in-person visit to examine your books, this can entail a site visit, or a trip to your accountants office if you bring your books to them. This doesn’t happen only to those who have made questionable or suspicious claims, it also happens at random. Like backing up your data before your hard drive crashes, it’s imperative that your books are up to date prior to an audit request.

What To Do When You Get Audited

Contact Your Accountant Immediately – Before you do anything, including responding to the notice, you need to call your accountant. They understand the auditing process very thoroughly and can give you informed advice on how to proceed based on the law and your business interests. If your accountant has acted as a professional advisor for your business, you will likely be in great shape for the auditors. If not, your CA can still give you the best advice on how to proceed.

Mentally & Financially Prepare Yourself – The process of an audit can be stressful and also very costly. More often than not, you will be found owing money to Revenue Canada as well as whatever time you spend away from running your business.

Paper Trail Talks, Excuses Walk – When your auditor requests information, simply provide exactly what they ask for and nothing more. Don’t try and predict what your auditor’s next move is and save them time by explaining your expenses, it doesn’t help your case or the process.

Keep It Away From The Business – If you have been engaged in a field audit then you should have your accountant meet with the auditor on your behalf in their office. Your accountant is able to completely stand in for you so that you don’t even have to be there for the duration of the audit.

Let The Process Run It’s Course – If you are being audited, make sure that you respond right away rather than ignoring the request. Comply with the auditor and confide in your accountant for advice along the way.

You Can Always File An Appeal – If you and your accountant disagree with the auditor’s assessment of your tax filing, you can file an appeal. You can arrange a meeting with an appeals officer who will investigate to ensure that the audit that has taken place was indeed accurate.

The one thing that I can’t stress enough is the importance of contacting your Kelowna accountant if you are being engaged in an audit on your business. It’s important to use this guide to be aware of the process, but audits are extremely complex, stressful and end up costing you a lot more money without the aid of a professional.